GITAM UNIVERSITY

GITAM INSTITUTE OF MANAGEMENT

Operations Management

OPERATIONS MANAGEMENT
Service Operations Management

Manufacturing, service and agriculture are the major economic activities in any country. In India, manufacturing and services together constitute nearly 75% of the

GDP. Moreover, in recent years the growth in GDP is primarily due to the growth in these sectors of the economy. During the last ten years, the share of services in the GDP has grown steadily from about 40% to about 51%. The Union Government began taxing three services in 1994-95. This has grown steadily and as of 2004-05 the number of services taxed has gone up to 71. All these indicate the growing importance of services in the Indian economy and the need to apply management practices to plan and control operations in the service sector. Service organisations respond to the requirements of customers to satisfy some needs and leave certain experiences in the minds of the customer through a service delivery system. This course addresses the strategic and operational aspects of managing service systems. In addition to discussing the design and operational control of service operations, specific issues pertaining to certain sectors of the service industry are also addressed.

Operations Management in Manufacturing

To perform this function in todays business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, to hold down the costs of materials and labor, and to eliminate all costs that add no value to the finished product. Making the decisions involved in the effort to attain these goals is the job of the operations manager. That persons responsibilities can be grouped as follows:

Production planning. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out. Production control. Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories. Quality control. Finally, the operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained.

Lets take a closer look at each of these responsibilities. Planning the Production Process The decisions made in the planning stage have long-range implications and are crucial to a firms success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Perhaps it wants to build a reputation for reliability. What if it intends to offer a wide range of products? To make things even more complicated, all these decisions involve trade-offs. Upholding a reputation for reliability isnt necessarily compatible with offering a wide range of products. Low cost doesnt normally go hand in hand with high quality. With these factors in mind, lets look at the specific types of decisions that have to be made in the production planning process. Weve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management. Production-Method Decisions The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, you should answer such questions as the following:

How much input do I receive from a particular customer before producing my goods? Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later? Do I offer customers the option of customizing an otherwise standardized good to meet their specific needs? One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the companys customers.

Make-to-Order At one time, most consumer goods, such as furniture and clothing, were made by individuals practicing various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a make-to-order strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. By the early twentieth century, however, a new concept of producing goods had been introduced: mass production (or make-to-stock strategy) is the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances. Mass Customization But theres a disadvantage to mass production: customers, as one contemporary advertising slogan puts it, cant have it their way. They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called mass customization, which (as the term suggests) combines the advantages of customized products with those of mass production. This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers. The list of companies devoting at least a portion of their operations to mass customization is growing steadily. Perhaps the best-known mass customizer is Dell, which has achieved phenomenal success by allowing customers to configure their own personal computers. The Web has a lot to do with the growth of mass customization. Nike, for instance, now lets customers design their own athletic

shoes on the firms Web site. Procter & Gamble offers made-to-order, personalcare products, such as shampoos and fragrances, while Mars, Inc. can make M&Ms in any color the customer wants (say, school colors). Naturally, mass customization doesnt work for all types of goods. Most people dont care about customized detergents or paper products. And while many of us like the idea of customized clothes from Levis or Lands End, we often arent willing to pay the higher prices they command. Facilities Decisions After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.